Three Moves You Need To Make Before Approaching an Investor

When you first get an idea or discover a way to expand on an already running project, you probably also immediately have this irrepressible urge to run out and get funding for it. However, you would most likely being doing yourself and your idea a disservice this way. You are skipping several steps that can make or break your latest venture before you even get started.

Sell the Idea to Yourself

The first person you need to sell on your idea is yourself. Look at it from all angles and decide how best to approach the situation. Developing a successful strategy is not going to happen overnight. Think small at the beginning. Find a small team and convince them there is a market for your product. Have the necessary research and data available for them to see. Even better, have either sales or presales to back up your pitch. If you have the ability to tell this small group of investors that X amount of capital in your business idea will yields Y amount of revenue, venture capital firms will be all ears. When you show them that you have strong growth metrics or sales associated with really great margins, you will have your pick of firms who will both be very interested and want to fund your business.

Finding Investors

This is what most startups or small businesses still struggling to find investors don’t quite seem to get yet. While you may see investors as wealthy individuals who have lots of cash to spend (especially because you see them buying luxury homes, cars and yachts), they don’t necessarily just throw cash into the dustbin for every idea. Every investor is looking to make profit in the end and convincing them your idea can help them realistically bank profits is a quick way to get their funds. Most often, if you do the preliminary survey and analysis and believe in your own idea, it’s often easy to sell such idea to the investor. Investors would rather spend money on extra luxury items (at least it would allow them show-off one way or the other) than to give a random stranger hiding behind the idea of having a business plan.

One discouraging statistic you need to keep in mind is that 9 out of every 10 startups will, in fact, fail. This is the truth, so be prepared to fall on your face once or twice, or potentially even more. Be sure not to take it personally, and continue to strive for success. Try to maintain an open mind. Being as prepared as possible is a huge indicator of success. Have solid research or sales results to bring to initial meetings with investors to keep them listening to your ideas.

Following the ideas laid out below will also increase your chances of success:

Prepare to do the research upfront. Things like metrics and outcomes are things you cannot control when your company is just starting out. Remind yourself that you cannot promise revenue at this point. Instead, you can focus on the things that are in your control—tracking that information through data you can use. Analyze that kind of information before you attempt to seek funding. Schedule a focus group, use online surveys, or even ask friends and family so that you can market-test to your target audience. Bit by bit, you will reveal the big picture on what you have to do so that you can build a business plan. By having data information in your corner, you have the credibility you will need to show investors that you take these things seriously and that you are learning from the past, that you are informed on the present, and already anticipating the future of your business.

One size does not fit all. Because there are many different options to fund your business, you need to vary your approach in order to be successful. The same sales pitch is not going to work on every VC firm, or even be successful on all members of a single firm. Do research on your potential investors. Be sure to find out their background and look into their portfolio companies, as well as the types of things they typically invest in. Look into how much each investor gets involved. Before attending a meeting with prospective investors, be aware of who is going to be in the room. Know exactly why you are a strong fit for their portfolio or that specific partner. Use this information to tailor your pitch specifically to your audience. When you are trying to find the right partner, you need to establish a level of trust and transparency that is not easily attained with just anyone. You want someone who is going to be agreeable to work with and who will be as passionate about your project as you are. Utilize your networking when possible—a glowing recommendation from someone who is familiar with you, your group, and your products will make a huge different getting your foot in the door for that critical first meeting with the venture capitalists.

The right place at the right time. The most important piece of groundwork you need to do before looking for funding is to know why what you are selling is going to work. One of main causes of startup failure is not being at the right place at the right time. People lose out because they are so focused on the premise they have come up with that they do not put in the time to investigate the market. They overlook the size and saturation of the market and, most importantly, the desire for their particular product in that market. If you do not do some investigating to find out where your ideas will fit in and how they can compete in the current marketplace, you will not succeed, and you certainly won’t get funding from any VCs. Don’t waste your time, and that of the VC firm, by being unprepared.

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